8 steps to organise your personal finances in the new financial year

You need to define your financial goals and investment objectives. All investments must be made with a purpose in mind.

Hiral Thanawala

The beginning of a new financial year is an ideal time to review your financial plan, set your financial goals for the year and plan beforehand rather than leaving everything for the last day. Let us look at 8 important actions financial advisors recommend you should take now from a personal finance perspective.

1. Review your investment portfolio and re-balance investment mix

If you haven't reviewed your portfolio for a while, there is a good chance that relative market performance of asset classes in last one year has changed your investment mix, causing your combination of mutual funds, stocks, bonds and cash to drift away from your plan. Viral Bhatt, Founder and Advisor at Money Mantra cautions, “At times, procrastinating reviewing of your portfolio can add risk—which might cause portfolio to experience larger losses than you are comfortable with in the event of a down market.”

It’s important to adjust your investment strategy and target asset mix if you have experienced any major life changes in the last financial year. “This includes nearing retirement and need to protect corpus built from volatility in the market, new family member added through marriage or birth of a child, drop in annual income due to a job loss or losses in business, etc.” adds Bhatt.

2. Start tax-saving with SIP in ELSS or low cost ULIPs

Salaried people know the income they will earn in the ensuing year. But, still take stock of whether they’ve utilised all tax benefits under section 80C, towards the end of a financial year. Sub-optimal decisions are then taken like investing in equity-based ELSS in a bulk without looking at equity market conditions at that time. Sanjeev Govila, CEO of financial advisory firm, Hum Fauji Initiatives advises, “Identify total amount you generally prefer to invest into ELSS for tax saving purpose at end of the year. Then instead of investing this lumpsum amount at end of the year, start SIPs into this schemes and pledge to invest into it from start of the new financial year.”

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SIPs are a good cost averaging mechanism in volatile markets as the cost of buying units is averaged out over time as the investor gets more units when the markets are down. SIPs not only minimize losses but also save the hassle of timing the markets. “Investment through SIPs in ELSS schemes is ideal for higher effective returns and building a large corpus for future goals down the line,” says Jimeet Modi CEO & Founder at Samco Securities.

Santosh Agarwal- Head of Life Insurance, Policybazaar.com says, “The budget 2018 has imposed LTCG tax on equity mutual funds whereas ULIPS come under the umbrella of EEE (Exempt-Exempt-Exempt). So, for tax saving purpose you can even prefer to start investing into ULIPs.” Similar to ELSS you can start investing into ULIPs through a SIP route every month which will also give you a tax benefit under section 80C.

3. Review your investments for retirement goal

Retirement accumulation review is another important annual exercise which can be done at this time. Since it is a very long term financial goal, an annual review is sufficient for most people. Govila says, “Check whether you are on track for the type of lifestyle you wish post-retirement – amount of saving being done, type of instrument being used and its tax-efficiency, whether there’s a much better instrument now available, etc.” Investing in NPS is another way to create a corpus for your retirement. At the start of a new financial year, you can invest in NPS to not only get the additional tax benefit of Rs 50,000 but over the years build a social security nest for you and your family.4. Review your insurance needs

Reviewing your insurance needs at start of new financial year is a good tradition. In a family, there are circumstances changed during the course of time which warrant a review of insurance policies. Such as new arrival or death in the family, large uninsured loan taken, splurged on vacations which have impacted financial situation, etc. “Needless to say, term insurance plans are the only insurance instrument that should be taken to enhance the life cover and help self-guard our dependents, in-case of uncertain death” says Govila.

Health insurance should be given a fresh look now and not when the health insurance premium is due because at the later instance, the insurance advisor guides what is good for them and we tend to take decisions in a hurry to get it done away with. Govila explains, “Deaths in the family, medical history for self or a family member, re-location to a more expensive city, etc. are the factors which should guide this decision.”

5. Increase your SIP with growth in annual income

When we say “SIP”, it generally means constant SIP, which does not increase every year for most people. Bhatt explains, “When we calculate SIP – the SIP value is generally very high and does not look realistic for investors. At times, such high investment can trigger affordability issue for them.” However, there is a clear solution for this, called “Increasing SIP”, where one starts the SIP with a lower amount and then gradually increases them year on year with increasing growth in annual income. This looks more realistic as one’s income also increase overtime and ability to invest also increases.

Illustration: Ramesh want to accumulate Rs 5 crores for his retirement which is 25 years away from now. When he calculates the SIP amount, it’s coming around Rs 31,000 (assuming 12% returns from investments). Now it’s not possible for Ramesh to invest Rs 31,000 every month, as it’s a very high amount. Rather he is fine to start with a small amount today. So, if Ramesh is ready to increase his SIPs by 10% every year with growth in annual income, then he has to start with just Rs 13,500. This amount is much more convenient for Ramesh to arrange, rather than Rs 31,000 per month right now.

6. Use your annual bonus smartly

If a bonus on salary is likely to be on the way, then it should be planned now whether a loan is to be fully or partly paid off (applicable if you have any loans) and reduce debt. Also invest lump sum amount for a children goal or vacations or other upcoming goals so that the money doesn’t get frittered away when it is actually received, simply because nothing has been planned for it and ‘mentally not committed’.7. Deposit your 15G/15H certificates

In case you are not likely to fall in the tax bracket in the coming financial year after all deductions have been taken into consideration. “Then this is the time you need to deposit your 15G/15H certificates for your interest income on your bank FD/RD, corporate FD, postal instruments etc so that TDS is not deducted,” advises Govila.8. Review financial goals and time-frame

Simply setting aside some amount as savings for future goals is not enough. Amar Pandit, Founder, HappynessFactory.in says, “You need to define your financial goals and investment objectives. All this investments must be made with a purpose in mind and review your goals annually.” Take the service of a qualified financial advisors to list out your life goals and how to prioritize, plan and invest to achieve these goals. This will motivate you to take necessary steps to achieve them. Periodic reviews of this goals with specific time-frame will ensure that you stay on track towards achieving your set goals.You can now invest in mutual funds with moneycontrol. Download moneycontrol transact app. A dedicated app to explore, research and buy mutual funds.